Microsoft gives Ballmer a reason to dance againMay 30, 2013: 12:34 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Windows 8 and the Surface tablet haven't exactly set the world on fire. Microsoft's new Xbox One game console hasn't gotten fantastic reviews either. And a lot more people Google themselves than Bing it.
But don't tell that to Wall Street. Shares of Microsoft (MSFT) are up more than 30% this year and are trading at their highest price since late 2007. It's enough to make CEO Steve Ballmer start dancing like a maniac again.
Why is Microsoft a hot stock all of a sudden? Amazingly enough, investors appreciate the fact that it's a somewhat boring and predictable company. It's mature. The company is the San Antonio Spurs of tech.(Does that make Ballmer Tim Duncan or Gregg Popovich?)
And there's nothing wrong with that. Being steady and dependable has worked wonders for IBM (IBM) for decades.
Microsoft's sales are expected to increase 8% in its next fiscal year, which ends in June 2014. And profits are forecast to rise nearly 11%. That's not phenomenal growth but it is definitely respectable, especially for a firm that is nearing its 40th anniversary and whose main business -- selling software for personal computers -- is in decline.
Then there's the dividend. Even though long-term bond rates are starting to climb (bond bubble bursting at last, anyone?), Microsoft is still a great stock for income-hungry investors with a dividend that yields 2.7%.
Microsoft, to its credit, also has heard some of the criticism of Windows 8 and is responding pretty quickly to the complaints. It doesn't seem like Windows 8 is destined to be another Vista-like disaster.
Microsoft unveiled some changes to Windows 8 Thursday. Corporate VP Antoine Leblond wrote in a blog post that Windows 8.1 will feature more personalization tools, redesigned and improved apps and better navigation options, including the return of the iconic Start button that many Windows users sorely missed.
Still, Microsoft's turnaround in the eyes of investors is stunning. Less than four months ago, I wrote a column about how Microsoft was lagging the market.
I referred Microsoft to as an "air ball" of a tech stock and the Seattle Not-So SuperSonics. Both hoops references were due to the fact that Ballmer was part of a group trying to buy the NBA's Sacramento Kings and move them to the Emerald City. The NBA wound up blocking the deal. Ironically, the Kings were sold to another group led by the founder of another software company, Tibco (TIBX), that plans to keep the Kings in Sacramento.
And only seven months ago, I wrote a column about how some Microsoft shareholders were openly wondering if it was time for Ballmer to get the boot.
Gary Bradshaw, a portfolio manager with Hodges Capital Management in Dallas who owns the stock, was one of the investors I spoke to in October about Ballmer. Back then, he said the company was "stuck in the mud."
I caught up with Bradshaw today and he said the biggest thing that has changed in the past few months is that investors finally appreciate the dividend. He said Microsoft is benefiting from the fact that investors are flocking to "safer" stocks in general. He noted that Microsoft is now viewed like a classic blue chip along the lines of General Electric (GE), Procter & Gamble (PG) and Johnson & Johnson (JNJ).
Bradshaw added that investors also think that Microsoft is finally taking mobile seriously. Even though it may not be a legitimate threat to Apple (AAPL) or Google (GOOG) just yet in the world of tablets and smartphones, investors are more confident about Microsoft's potential with these devices. Microsoft has a partnership with Nokia (NOK) for smartphones running on the Windows Phone operating system.
It doesn't hurt either that the stock continues to trade at a relatively low valuation of just 11 times fiscal 2014 earnings estimates.
So Microsoft may never be the most innovative company in technology. But investors probably won't mind as long as the company remains cheap and keeps spitting out that steady dividend.
With $74.5 billion of cash on hand, that shouldn't be a problem.